Anne Wallace, Esq.

Minimum Wage Increases for the New Year and Beyond

Twenty-four states, the District of Columbia and five major cities either raised their minimum wage as of January 1, 2015, or will raise it during the coming months. Many of these changes are the product of 2014 legislation with delayed effective dates and or automatic cost of living provisions. Estimates are that anywhere from three to seven million low wage workers may ultimately see a pay rate increase.

From a practical perspective, employers, especially multi-state employers, should be alert to these increases and to the municipalities that have minimums above the state minimum. They should be careful to calculate the hidden effects for non-minimum wage workers, as well, including the classification of employees as exempt or nonexempt for overtime and other benefits. Finally, of course, they should also ensure that they comply with applicable notice requirements and update their postings.

From a theoretical viewpoint, the jury is still out about:

  • whether the considerable spread that now exists between high minimum and low minimum states will cause low wage labor to migrate,
  • whether the increased minimums will stimulate the economy or whether they will be offset with reduced hiring or hours for low wage workers, and if so, where the tipping point is, and
  • what effect state action will have on efforts to raise the federal minimum wage of $7.25 per hour, where it has been since 2009.

It may take several years to know the answers to these questions, but it will be very useful to have long-range data on which to base future conversations about minimum wage issues.

California’s Current and Future Minimum Wage

On July 1, 2014, the minimum wage in California rose to $9 per hour. It will rise again on January 1, 2016 to $10 per hour. Certain localities have even higher minimums and their own schedules for increases, which California employers should watch carefully.

Effective March 2, 2015, the minimum wage in Oakland, California will increase to $12.25 per hour and on the basis of cost of living increases in subsequent years.

As of January 1, 2015, employers in San Francisco must pay most employees who work at least two hours a week a minimum of $11.05 per hour. Further increases are scheduled as follows:

  • On May 1, 2015  to $12.25 per hour.
  • On July 1, 2016  to $13.00 per hour.
  • On July 1, 2017 to $14.00 per hour.
  • On July 1, 2018 to $15.00 per hour.

Effective as of January 1, 2015, the minimum wage in San Jose jumped from $10.15 to $10.30 per hour based on a cost of living increase.

San Diego’s minimum wage rose on New Year’s Day from $9.00 to $9.75 per hour. On January 1, 2016, it will go to $10.50. Additional increases are scheduled through 2017 and beginning in 2019, will be based on increases in the cost of living.

Richmond, California’s minimum wage went from $8.00 per hour to $9.60 on January 1, 2015. In 2016, it will increase to $11.52 per hour, to $12.30 in 2017, and to $13.00 in 2018,  Cost of living increases are scheduled thereafter.  Richmond has the distinction of having California’s highest minimum wage in a state that is close to the top nationally in any event.

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The Implications for California Employees

Even at these rates, according to a study done by the National Low Income Housing Coalition, the average California minimum wage worker would have to work approximately 130 hours a week to afford to pay the rent on a two bedroom apartment at fair market rent. The statistics have been criticized, however, and will have to be updated to reflect the new minimums.

There also really is no average minimum wage worker, and the impact of increases will be felt much differently in East Los Angeles, where 31.8 percent of workers would benefit from a wage hike, than Pasadena. Nonetheless, for those living on minimum wage, $9 per hour looks better than $8 and $10 per hour will look even better.

The Hidden Implications for California Employers

There is a larger benefit to lower wage workers that may get lost in this debate. These increases will have important consequences for non-minimum wage workers  because of the formula California uses to calculate who is and who is not protected by the provisions of the Labor Code.

California law, like federal law, extends several kinds of protections to employees (termed “nonexempt”) who make more than the minimum, but less than a certain maximum.  An employee is nonexempt if he or she makes a monthly salary that is less than twice the state minimum for a full time employee.  At $9 an hour that is $37,440 per year. Salaried administrative employees who make $36,000 per year in California became be newly entitled to overtime on July 1 and the change scheduled for January 1, 2016 will have similar effect.

This also affects inside commissioned salespeople. Inside salespeople are nonexempt if they earn less than one and a half times the state minimum wage and more than half their income comes from commission.  An inside sales person who earns less than $13.51 per hour after July 1 also became entitled to overtime.

California is Not Alone

In 2014, more states raised their minimum wage than at any time since 2006, and the trend continues through 2015 and beyond.

On December 31, 2014, the minimum wage in New York rose to $8.75 per hour; it will rise again on December 31, 2015 to $9.00 per hour. The rate in New York City, somewhat surprisingly, given the increases in other big cities, will remain the same as that in New York State.

In Illinois, the basic minimum rate is $8.25 per hour, but in Chicago, it will go to $10.00 per hour on July 1, 2015, increasing to $10.50 per hour in 2016, $11.00 per hour in 2017, $12.00 per hour in 2018, and to $13.00 per hour in 2019.

Florida saw the smallest increase. Its minimum wage rate is modified annually based upon an inflation and cost of living formula, increasing only $.12 to $8.05 per hour on January 1 2015. The state will see another automatic minimum wage increase, similarly calculated, in January 2016.

In Minnesota, large employers, with an annual gross revenue of $500,000 or more as of August 1, 2014, must increase minimum wages to $9.00 per hour on August 1, 2015 and $9.50 per hour on August 1, 2016.  Small employers, on the other hand, with an annual gross revenue of $500,000 or less, must increase minimum wages to only $7.25 per hour on August 1, 2015 and $7.75 per hour on August 1, 2016.

Effective January 1, 2015, Maryland’s minimum wage increased to $8.00 per hour and to $8.25 per hour on July 1, 2015.  Subsequent increases will bring the minimum wage to $8.75 per hour in 2016, $8.25 in 2017, and $10.10 per hour in 2018. The minimum wage in Prince Georges and Montgomery Counties, in the DC metro suburbs, will increase for the next three years on October 1 to $9.55 per hour in 2015, $10.75 in 2016 and $11.50 per hour in 2017.

The increase in these suburban counties may have been a product of the increases in Washington, DC., and it may be worth watching to see if other metropolitan areas will respond similarly to cities that have higher than state minimums.

Effective as of July 1, 2015, Washington D.C.’s minimum wage will increase to $10.50 per hour and to $11.50 per hour on July 1, 2016. Federal contractors saw their minimum wages increase under an executive order in mid 2014.

The Seattle Question

Six months ago, all eyes turned to Seattle, where the minimum wage was set to increase to $15 by 2021, the highest in the nation. The increase is designed to occur in increments dependent on two factors, including  the size of the business and whether the employer offers health benefits to employees. As of January 1, 2015, Washington State’s minimum wage is $9.47 per hour, as a point of reference, already among the highest in the country.

Seattle’s increase for 2015 is relatively modest, bringing the minimum to $10 per hour for certain employers and $11 per hour for others. By 2017, the $15 rate would apply to employers with more than 500 workers who do not provide healthcare for employees. By 2018, it would also apply to employers who do provide healthcare and ultimately to all employers by 2021.

It is an unusually high minimum, an unusually long phase-in period, and an interesting approach to incentivizing employers to offer healthcare benefits. Seattle is also hardly a low-wage enclave, more like Pasadena than East Los Angeles, so it is not entirely clear whether the law will make much of an immediate change in the local economy. At the time Seattle’s increases were enacted mid-year, many asked whether other localities would follow suit. It now appears that the answer is yes. The link to healthcare benefits is still unique, although similar in some ways to Minnesota’s differentiated approach to large and small employers.

If nothing else, the fact that the changes are occurring on state and local level, rather than a national one provides a chance to “road test” various economic theories about labor migration, the tipping point at which an increase in the minimum wage might have deleterious effects on hiring and possible schemes for linking wages to other legally required parts of a compensation package or employer revenues.

That’s a little cold, though, from the perspective of the low wage workers who are not benefitting from these increases. Those states in the Southeast and Southwest, like Texas, where workers might benefit most from an increase in the minimum wage seem the most reluctant to move beyond a federal standard that is mired in Congressional paralysis.

What is the likelihood that Congress will act to increase the federal minimum? Some argue that state and municipal action decreases the pressure on Congress to act. Some argue that the opposite is true. It may depend on the Congressperson’s home state. Many have simply begun to regard Congressional inaction as a given.

In any event, the task of compliance for many employers, especially those that operate in several states, has become considerably more complex. As employers evaluate salary structure and benefits, it will also be important to stay on top of the collateral effects an increase in the minimum wage will also have on more highly paid staff.

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